1.5 million New Zealanders have been on the wrong prescribed tax rate, according to IRD. - Photo: RNZ / Richard Tindiller
Inland Revenue (IRD) is contacting investors to correct their tax rate after an estimated $42 million was overpaid by around 950,000 New Zealanders in the 2019 tax year.
IRD said that 1.5 million New Zealand investors, including KiwiSavers, were on the incorrect prescribed tax rate (PIR).
Around 550,000 of those have underpaid their investments, according to IR, with an average of $80-$90 owing in tax.
However, almost double that number have overpaid by an average of $44 per person.
Inland Revenue deputy commissioner Sharon Thompson said current legislation does not allow for a refund of overpayment.
Ms Thompson said trying to go back over past years and determine incorrect payments based on wrong PIRs would have required significant work not just for Inland Revenue but for individual taxpayers and financial institutions.
"For the 2019 tax year, an estimated $42 million was overpaid. Current estimates show between $45 and $50 million of investment tax was underpaid, and that will be recovered," she said.
"But these figures are changing as IR's new system continues to receive information."
Ms Thompson said IRD will be getting in contact with investors to correct the error.
"From mid-July 2019, we'll begin proactively contacting customers who are on an incorrect PIR to let them know they need to change it to avoid paying too little or too much tax in the future. They can then contact their investment provider to change their rate.
"And in the future, we'll contact customers during the year if we identify they are using an incorrect PIR. This will be an on-going process to ensure that customers can get things right from the start."